Empowering SMEs through financial education

María Fernanda Carvallo, Mexico City Community Manager

Mexico D.F., 22 December 2014

According to the OECD, "During the last decade, the majority of economies in Latin America and the Caribbean have shown sustained growth, which has resulted in an increase in their middle classes. In spite of these advances, levels of poverty and inequality continue to be high, and financial exclusion continues to affect both the urban and rural populations, which could hamper the future economic and social development of the region."

Financial exclusion affects business owners as well as Small and Medium Enterprises (SMEs). With regard to SMEs in the informal sector, the negative impact is greater, as entrepreneurs normally have difficulty finding financing for their business, credit, social security for their employees, access to training from partner institutions, and other benefits.

In this context, one of the biggest challenges different bodies of the government and financial institutions in Mexico City face is ensuring financial inclusion of informal SMEs. Why is it important to include them financially? It is known that SMEs are the economic engine of the country, generating 52 percent of Gross Domestic Product and 72 percent of employment. Ten percent of economic activity in the country is from informal SMEs, meaning restaurants, service-based companies, or businesses of some other sort that are not registered before competent authorities due to lack of knowledge or incentives.

At the same time, over 90 percent of SMEs do not survive the first few years. Reasons for this include lack of access to credit, poor business culture, lack of knowledge of the market, and insufficient government support.

Realizing this problem, the Federal District Government and financial institutions look to build platforms to bring the benefits of formality to these SMEs. One of the first steps in encouraging financial inclusion is through education, intended to teach the benefits of moving toward formality.

One of the key players in the finance sector in Mexico that overcame the challenge of financial inclusion for formal and informal companies is the BBVA Bancomer group. The group advocates for a free and accessible fiscal education model for all those looking to improve their capacities using financial instruments.

Their financial education project Go Ahead with Your Future aims to strengthen the knowledge of formal and informal SMEs and inform them about topics like credit resources, cash flow, and credit coverage. SME workshops can be in person at the Interactive Economy Museum or online via the "Go Ahead with Your Future" website, which enables users to have tutors, or participate in chats or forums where they can find solutions to their problems.

BBVA Bancomer started these workshops in 2011. Between 2013 and 2014 they had benefited more than 3,000 people in Mexico City and 70,000 at a national level. While this program alone does not solve the issue of financial exclusion for informal SMEs in Mexico City, it is a good start to invite informal businesses within the Federal District to move toward formality to be able to grow, provide employee benefits, and expand their services.